The countries of the European Union tend to be viewed as the main advocates at the national level for developing a more comprehensive and binding global plan to tackle climate change. As the EU pushes forward, other nations have been stuck in neutral or have been retrenching. With the European economy continuously struggling to pick up any momentum and energy costs increasing, there is the view that economic growth has become stunted due to the relatively ambitious climate targets, which in turn places the countries in weaker position to compete in global markets with nations that lack similar regulations. However, European Commission President Jose Manuel Barroso insists combating the two issues at the same time is not contradictory. Rather, he claims, “climate action is central for the future of our planet, while a truly European energy policy is key to our competitiveness.”
Today, the current European climate/energy policy is known as “20-20-20” targets. In 2007 the EU adopted the policy by setting a 2020 timeframe for all member states to reduce greenhouse gas emissions by 20 percent of 1990 levels, to increase energy efficiency by 20 percent, and to raise the amount of energy produced from renewable sources to 20 percent.
Last month, during a European Commission meeting these targets were reviewed looking deeper into the future with an eye on 2030. The executive body recommended increasing the target to reduce the greenhouse gas emission by 2030 to 40 percent, which must be met by reducing emissions in the EU. The current target can be partially met by financing projects outside the EU.
While many hailed this proposal, the reception was not so warm for the increase of the energy portfolio to reach 27 percent of renewables by 2030. The new renewable energy target would be an EU-wide basis and effectively eliminate the mandate for individual member countries, enabling more flexibility of determining internal energy portfolios. The commission also refrained on energy efficiency as the energy commissioner will first review the current legislation before proposing the next steps and refrained from proposing new legislation to regulate the development of shale gas.
One can surmise that countries not emboldened to embrace renewable energy will now reduce production, while leaving other nations to pick up the slack. Scientists and environmental advocates believe the these targets are actually too lax overall if the EU is to meet the long-term goal of cutting greenhouse gas emissions by up to 95 percent by 2050 to limit the rise in global average temperature to 2°C above pre-industrial levels — one cannot look beyond the influence of the U.K.’s push for nuclear energy and evaluating its shale opportunities (the U.K. believes the greenhouse gas reduction target is sufficient), and Poland’s large-scale use of coal and potential of shale development.
Nonetheless, Vestas CEO Anders Runevad and Climate Group CEO Mark Kenber believe that the Executive’s proposals could be drivers for clean economic growth.
European Parliament Altered Tact
Despite this influence in the executive, the European Parliament did not embrace all the same recommendations. In fact, on February 5 in Strasbourg, France, members of the legislative body called “on the Commission and the Member States to set a binding EU 2030 target of producing at least 30 per cent of total final energy consumption from renewable energy sources; stresses that such a target should be implemented by means of individual national targets taking into account the individual situation and potential of each Member State.” The final 341 to 263 vote also included calling for the same 40 percent cut in greenhouse gases, compared with 1990 levels and also includes a 40 percent improvement in energy efficiency arguing that impact assessments had shown that it would benefit the bloc’s economy. The members of parliament (MEPs) did not debate amendments for even more ambitious targets, including a proposed 50 percent reduction in emissions and 40 percent renewables target.
The European Wind Energy Association (EWEA) applauded vote and now estimates that the renewable energy target binding at a national level could provide 570,000 new jobs and save €500 billion ($680 billion) in imports of fossil fuels, with lower energy costs for energy-intensive industries.
The vote is non-binding, but the thought is it will provide a signal to member governments before the EU 2030 climate and energy targets are set to be debated. The ministerial meetings scheduled for March 3 and 4 and at the heads of government summit from March 20–21 will dissect energy and environment policy and its impact on competitiveness. If member states prefer to stick to the executive’s recommendations made last month, without binding national targets, the parliament has no power to reverse that course.
Notwithstanding the U.K.’s known opposition of national targets, Ed Davey, Secretary of State for Energy and Climate Change said “the right 2030 package will unlock low carbon investment, while keeping consumers’ energy bills down. The vote in the European Parliament is one stage in the process and we are pleased that MEPs have come out in favor of an ambitious climate package for 2030.”
Is the Competitive Argument Fair or Rhetoric?
BP’s chief economist Christof Ruehl said on February 4 that the claims by industrial firms that they would leave the EU over rising energy costs for cheaper costs in the United States are unfounded. Mr. Ruehl continued “the major macroeconomic implication is the balance of trade.” Energy import costs need to be confronted as fuel import cost is predicted to reach €600 billion ($811 billion) annually by 2050.
An important report, “Staying with the Leaders: Europe’s Path to a Successful Low-Carbon Economy,” from the Climate Strategies Group — a nonprofit that works with leading international institutions and experts to provide independent policy and economic research input to European and international climate policy — was released February 6. It concludes that the evidence climate policy weakens European competitiveness is flawed. It actually embraces a complete “180,” and states the bloc risks falling behind its economic rivals unless it embraces more ambitious low carbon policies.
However, the European Commission does not expect to produce a formal legislative proposal until after parliamentary elections in May and a changeover of commissioners later this year.
Restructure of the ETS is needed
For the ability to meet any increased pace of greenhouse gas reductions, the EU’s Trading Scheme (ETS) — a market system where energy intensive businesses purchase offset certificates for the greenhouse gases they have produced – needs an overhaul. Prices peaked five years ago around €30 ($41) per ton of carbon, but recently they have plummeted to €4 ($5.40), partially due to the economic slowdown and reduced industrial activity, thus losing much of its bite to discourage emitters.
A legislative proposal for the ETS calls for the creation of a stability reserve of carbon emission permits. The imbalance is primarily from the excess permits or allowances and the current demand. Part of the two billion surplus permits would be taken out of the carbon market gradually and throughout the trading period, depending on the volume of permits in the system to stimulate the depressed prices. Critics of the new scheme believe it would not be done fast enough to significantly impact the carbon price and would not be a driver for new green investments. On February 6 the parliament voted (306 votes to 276 with 14 abstentions) to begin early implementation of the so-called backloading plan in March; not long after, carbon permit prices rose about seven percent, to about €6.60 ($9). However, the price still needs to rise sustainably to influence business decisions.
Regardless of the ETS, it will be interesting to see how much continued influence Germany has as the largest EU economy over subsidies for renewables. The nation has made it policy (known as Energiewende, which translates to energy transition) to move off of nuclear energy after Fukushima and to increase its reliance on renewable energy. To stimulate this transition, it has been spending billions subsidizing the new energies.
Recently, Sigmar Gabriel, Federal Minister of Economics and Energy and Vice Chancellor of Germany, said the transformation could create huge economic, ecological and political benefits, but at the same time was posing risks to Germany as a modern industry. “We need to break the dynamics of ever-rising electricity bills, while ensuring a stable supply of energy for all.” Mr. Gabriel also unveiled a plan to reform the Renewable Energy Sources Act (EEG) and reduce subsidies from €0.17 ($0.23) per kilowatt hour to €0.12 ($0.16) by 2015. German household electricity prices are now 48 percent above the European average, according to McKinsey’s report “Energiewende-Index.” However, it is important to realize that studies have shown that the subsidy rate and retail rate do not have direct correlation.
Whatever Europe decides internally will have a major influence on the international debate within the confines of the U.N. climate negotiations (UNFCCC). Slow progress has been made, but there is global agreement to hash out a deal by 2015 in Paris to reduce emissions – this year’s meeting to further lay the groundwork will be in Lima in December. Mrs. Hedegaard hopes their efforts will be viewed as a benchmark and a driver for other countries to reach the 2015 agreement.
Thus far, the EU’s policies have led to its greenhouse gas emissions being reduced by 18 percent compared to 1990, with renewable energy sources contributing to 12.7 percent of the bloc’s energy consumption. According to Connie Hedegaard, the European Commissioner for Climate Action, Europe is on track to reduce its carbon emissions by 24 percent on 1990 levels by 2020. She continued “the direction for Europe has been set. If all other regions were equally ambitious about tackling climate change, the world would be in significantly better shape.”
U.N. Secretary-General Ban Ki-moon agrees, saying the “new ambitious proposals are the standard to follow;” World Bank president Jim Yong Kim praised Europe’s “climate leadership and ambition” and U.N. climate chief, Christiana Figueres, called them a “positive signal for a meaningful 2015 agreement.”